In the world of investing, there are safe and secure investments such as bonds and cash. However, these don’t boast the most impressive of returns.
At the other end of the spectrum, there are investments that can be very lucrative, but also very risky. Forex and options fit into this category. Then, there are investments that fall between the two extremes.
You should have a mix of safer investments and more lucrative investments in your portfolio. Dr. John Demartini invented a technique called the “forced accelerated savings technique.” It is designed such that you pursue the safer investments earlier on, followed by the more lucrative ones later on.
At the Platinum Mastermind in Fiji, Paul O’Mahony outlines the technique in this video.
START WITH LOW RETURNS AND WORK YOUR WAY UP
Assume you are starting with zero money in savings. Your first goal should be to save 3 months worth of your salary. This is either the salary you pay yourself from your own business, or what your employer pays you.
If you can afford to save 10% of your income, it will take you 30 months or two and a half years to save 3 months worth of your salary. If you can cut down on your expenses and afford to save a bigger chunk of your income, it will take you less time.
For example, if you earn $10,000 a month, you want to first build up $30,000 worth of savings.
With that first $30,000, you want to invest it at 2 to 4 per cent. This sounds like it’s not much, and it’s not. Remember, investing is about protecting your money, not risking it.
After you make that first investment, start saving another 3 months worth of your income. If you’re putting away 10% of your income, this will take you another two and a half years. During these two and a half years, you’re researching investments that return 5 to 7 per cent. Higher returns, but also higher risk.
Then you repeat the cycle. After you invest the second $30,000, you start saving up the third $30,000 while researching investments that return 8 to 10 per cent.
Each cycle, you are looking for investments that yield higher and higher returns, but also present a higher risk. The key is that you only go after the high returns after you’ve put enough money into the safer investments.
DON’T GET GREEDY
Where people go wrong is they get greedy and impatient. They take that first accumulation of savings and put it straight into the risky 15 per cent return investments like forex and options.
These kinds of investments are definitely worth researching, once you’ve already put plenty of money away into the safer investments such as cash, bonds and blue chip stocks. At that stage, you’ll have earned the right to research the riskier and more lucrative investments.
When you have that cushion, you are able to handle the riskier investments with a level head. But if you jump into them without the cushion, you are at the mercy of your emotions – impatience, greed and fear.
That’s no recipe for success in investing and you’re a lot more likely to lose your money.